05 Sep 2019
Singapore Mediation Convention: Is the Rule of Law Intact?[1]
Justice Datuk Dr. Hj Hamid Sultan bin Abu Backer FCIArb[2]
The Singapore Convention on Mediation (United Nations Convention on International Settlement Agreements resulting from Mediation) was signed in Singapore on 7th August 2019 (Convention). It was a significant move by UN Commission on International Trade Law (UNCITRAL) in promoting ADR to commercial disputes which has nexus to foreign parties (International Disputes).
The significant impact of International Disputes settled through mediation agreement as opposed to arbitration or litigation, may mean less work for the courts, arbitral institutions, lawyers, arbitrators, etc. Less work means less employment and revenue. Less revenue means less economic activities in the States. Less work and less revenue may take place in the arbitration community in countries where International Arbitration has been flourishing in the last few decades.
The immediate benefit to the parties who opt for mediation under the Convention is that for relatively a small fees and costs, a mediation settlement agreement can be procured and enforced in all countries which had endorsed the Conventions in their States.
The Convention permits a settlement agreement without the endorsement and scrutiny of the State court (seat) as well as the enforcement court, to facilitate the enforcement based on low procedural thresholds. To put it mildly, a mediation settlement in breach of rule of law will now be easily enforceable if the parties to the settlement agreement do not object. Is it completely desirable?
Mediation settlement agreements unlike arbitration awards, were not a welcome feature in the past by the courts. Such settlement was seen to compromise the rule of law. However, the recent approach to mediation is to encourage parties to settle litigation by mediation agreement subject to the final endorsement and sanction by the court, to ensure the rule of law is not breached. Courts in the common law jurisdiction take the view that “no court of law can countenance or give effect to an agreement which attempts to take the administration of law out of the hands of the judges and put it in the hands of the private individuals”.
The jurisprudence behind this strict approach by the courts, who are the ultimate guardians of the rule of law, is to ensure that settlement agreements which have elements of undue influence, coercion, fraud, illegality, criminal element, such as those related to money laundering activities, evasion of tax, etc. are not approved by the courts. To ensure the rule of law is intact, the evidence on these issues will usually be given by sworn affidavits and the parties represented by lawyers will be required to give full and frank disclosures to the court as officers of the court to the queries by the judge. Thus, the safeguard for rule of law is sustained.
Bird’s eye view of convention
The Singapore Convention is fashioned in the style of the New York Convention 1958 (NYC 1958). The preamble appears to take a simplistic approach to the jurisprudence related to settlement agreements and the importance of court’s scrutiny at the ‘State or seat’ where the settlement agreement is executed. The scope and parameters of mediation, settlement agreement and/or commercial disputes is not defined at all. The important requirement of ‘seat’ for international disputes has been left out.
The Convention consists of 16 articles. The most important provisions are articles 1 to 5 and others are related to process and/or administrative process. None of the provisions appear to ensure the security features to sustain the rule of law, in contrast to the NYC 1958 and the Model Law 1985. The Convention endorses party autonomy as the primary criteria for enforcement at the expense of rule of law. Such a step is indeed revolutionary in contrast to arbitration and/or litigation.
Article 1(1) essentially explains the parties to the international disputes similar to the provision related to international arbitration under the Model Law. Thus, pure domestic mediation agreement does not fall within the Convention.
Article 1(2) essentially excludes domestic matters such as personal, family, inheritance, employment law, etc.
Article 1(3) excludes settlement agreements concluded in a court process and which can be enforced as a judgment in the State of the court. It also does not apply to settlement agreement which are enforceable as an arbitral award.
Article 2(1) compliments article 1(1) related to ‘International Disputes’.
Article 2(2) provides for settlement agreement in writing to include electronic communication which can be retrieved.
Article 2(3) attempts to define mediation, to be a settlement achieved by the parties themselves with the assistance of the third party who in particular will lack the authority to impose a solution to the parties. The mediator is not given any role to ensure that the subject matter of the settlement agreement does not impinge on rule of law.
Article 3 emphasises that the Convention State: (a) will facilitate the enforcement of the settlement agreement as per the Convention; and (b) if a party to the enforcement proceedings claims that the matter has been settled by a settlement agreement, then the Convention State shall allow that party to prove the settlement agreement as per the Convention.
Article 4(1) sets out the documents which are necessary for enforcement purpose. The threshold to satisfy is extremely low and/or is not inspiring to sustain the rule of law. It is sufficient if the settlement agreement signed by the parties is produced with the evidence that settlement agreement resulted from mediation, such as (i) mediator’s signature on the settlement agreement; (ii) a document signed by the mediator indicating the mediation was carried out; or (iii) an attestation by the institution that administered the mediation. In addition, a liberal provision to say that in the absence of (i), (ii) or (iii) any other evidence acceptable to the competent authority.
Article 4(2): (i) paves way for electronic communication to be admitted as opposed to the conventional documents; (ii) requires translation from competent authority; (iii) competent authority may be required to verify that the Convention requirement has been satisfied; and (iv) when a request is made, competent authority is required to act expeditiously. There is no mention as to who the competent authority will be in the place where the settlement agreement takes place.
Article 5(1) sets out the grounds to refuse enforcement and it has similar provision as Article V of the NYC 1958. Briefly, in relation to the settlement agreement, they are as follows: (i) incapacity of a party; (ii) null and void, inoperative or incapable of being performed under the law; (iii) is not binding or not final; (iv) subsequently has been modified; (v) obligations have been performed or the terms not clear or comprehensible; (vi) granting relief will be contrary to the terms; (vii) serious breach of the mediator related to the process; and (viii) lack of disclosure of mediator on issues related to impartiality or independence.
Article 5(2) reserves the right of the court related to the enforcement to refuse the relief if it finds: (i) granting relief will be contrary to public policy; (ii) subject matter not capable of settlement by mediation.
Observations
The Convention has far reaching consequence as it attempts to remove the jurisdiction of the State court where the settlement agreement is executed and allows enforcement of any form of settlement at the enforcement court if one of the parties themselves do not object. To put it mildly again, settlement agreement which will be in breach of rule of law of the State in which it was executed and/or at the State of the enforcement takes place, may go through if parties do not object.
It must be emphasised that: (a) even in domestic disputes a settlement agreement to be enforced through a court system must pass the test that the agreement is valid and enforceable. It is often seen as a cardinal test to sustain the rule of law; (b) whether an agreement is valid and enforceable is a separate exercise of judicial power and is not subject to party autonomy concept. This strict procedure is maintained in arbitration, statutory adjudication and even in court mediated settlement. However, it is not patent under the Convention. The enforcement procedure appears to be administrative in nature and if there is no objection the enforcement will go through. It will create a fertile opportunity to enforce agreements which may be related to severe violation of rule of law; (c) unlike an arbitration award, a settlement agreement will not set out the facts and grounds of decision for the enforcement court to be appraised of any breach of rule of law inclusive of criminal element related to the settlement; (d) jurisprudentially, fast tracked enforcement within a framework where the rule of law is perceived to be compromised may naturally lead to unavoidable anarchy; (e) international commercial settlements may be for a substantial amount in quantum. Settlement agreements in breach of rule of law and enforcement in lightning speed with the support of electronic communication may result in fund disappearing overnight and there could be an avalanche of victims. Proper mechanism to check rule of law will indeed be welcomed; and (f) compromise deeds are dangerous when allowed to be enforced in other jurisdictions. It can lead to fraud and without knowledge of parties ‘fraudulent settlement deeds’, can be registered and enforced. It may even lead to a scam.
For example, in a case of illegal logging and environmental destruction by a foreign company in a Convention State A and subsequent sale to foreign company in a Convention State B and purported mediated settlement payment to be collected in Convention State B - will be good for enforcement in a Convention State B. All forms of offences as well money laundering activities will go unnoticed if no party objects. The convention may easily facilitate such a transaction. This will not happen in arbitration or litigation or even in a mediated settlement through court process via a respected seat.
Conclusion
The Convention is a welcomed move in the evolution of ADR and enforcement of its orders. However, there must be safeguards to ensure the Rule of Law is not compromised.
The supremacy of the rule of law must not be compromised in any manner even in ADR mechanism and the reason for that was eloquently stated by Professor Dr. Colin Ong, QC in his keynote speech at the Global Mediation Forum 2019. That part of the speech read as follows:
“Without the Rule of Law, there would be chaos in both the commercial and non-commercial law world. The Rule of Law is looked upon as a universal value which lays down the basic framework for the proper functioning of countries and is meant to foster good governance and to improve the lives of people and trade.
While different states have different priorities and face different socio-economic opportunities and challenges which present great diversity in legal traditions and systems, there is one central thread which runs through all countries. The Rule of Law enhances the expectations of people and allows for norms and consistency in outcomes of commercial disputes and supports investor-confidence. It facilitates economic development by encouraging greater trading and cross-border investment.”
Any legitimate attempt to invite the courts to enforce settlement agreement via party autonomy concept, where there are no proper safeguards to ensure the rule of law has been sustained at all stages will impinge on the judicial power of courts. This may open the door to potential abuse.
It is timely to consider the well-known quote of Lord Westbury, as early as in the year 1866, where His Lordship in dealing with the rule of law in commercial matter had observed “that you shall not make a trade of a felony”.
The master architects of the Convention - if they find merit in the observation made in this article, may have to re-visit the Convention framework and take steps to ensure that the rule of law is intact.[3]
[1] This article must be seen and read as food for thought only and a humble contribution in the pursuit and dissemination of knowledge to sustain the rule of law. [See Justice Datuk Dr. Hj Hamid Sultan bin Abu Backer, ‘Constitutional Oath, Rule of Law and Judicial Review’, 2018 1 LNS A Cxxxv].
[2] Justice Datuk Dr. Hj Hamid Sultan bin Abu Backer FCIArb
[3] Heartfelt thanks to Dr. Ashgar Ali (UIA), Datuk Joy Appukuttan, Arun Kasi and Dinesh Nadrajog (Advocates & Solicitors, Malaysia) for their editorial support.